I-T dept rolls out angel tax rules startup valuations

The government rolled out the final angel tax rules for valuation of shares issued by startups to resident and non-resident investors, expanding the scope of the valuation methodology and easing the compliance burden on the sector to make it more attractive to deal with a funding squeeze amid the backdrop of a global slowdown.

The rules have broadened the scope of valuation methodology by offering foreign investors five additional methods and also brought in compulsorily convertible preference shares (CCPS), often seen as a key element of startup financing. The Centre has taken several measures to encourage startups and broaden the scope of the sector but some taxation issues had been cited as an obstacle. The notification of the angel tax rules is expected to ease some of the worries of foreign investors.

Earlier, angel tax was levied only on investments made by resident or local investors. However, the Budget expanded its scope to cover non-resident investors.